Currency Note Euro

Euro falls as ECB starts to act

By Smart Currency May 9th, 2014

The euro experienced a mixed start to the week after the bank holiday as some generally positive data releases from the Eurozone failed to have any real impact upon the performance of the single currency. This saw the euro generally weaker against sterling whilst strengthening against the US dollar for the earlier part of the week as investors looked to position themselves ahead of Thursday’s interest rate decision and following press conference. This event was to be the most influential of the week, and we saw the single currency strengthen very briefly just ahead of the conference at 1.30pm, but then weaken to a greater extent against both sterling and the US dollar as a result of the sentiments expressed by European Central Bank (ECB) President Mario Draghi.

Draghi strongly suggested that the ECB would act at its next monthly meeting in June. Pressure has been mounting of late as a result of suppressed levels of inflation in the eighteen-nation bloc and the rising threat that a strong euro is posing to Eurozone exporters. Draghi reacted by effectively priming investors ahead of action next month that is likely to involve a further decrease in interest rates or a programme of asset-purchasing. Unsurprisingly, this resulted in the euro dropping from a high of almost 1.40 against the US dollar to nearer 1.38, whilst the sterling-euro rate ended the day above the 1.22 mark. Aside from the German Trade Balance data due out today, there is little data of note being released. However we are likely to see continued reaction to yesterday’s events. Over the coming month we are likely to see continuing speculation based on the strength of upcoming inflation figures and debate over exactly how Draghi will act come June.

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